YOU CAN'T MEASURE A CEO'S PAY

Introduction Anything can be measured. The question is whether it can be measured well. As for executive salaries, it seems that it cannot be measured well, or at least in a way that experts agree on. There's almost as much disagreement among compensation experts about how to measure CEO pay as there is whether CEOs are paid too much. You may have read that the Dodd-Frank Act of 2010 includes "payment rules" so shareholders have a vote on executive compensation. But what does it pay? There is often a large difference between the expected salary (bonus targets and the value of the time-granted options) and the awarded salary (bonuses actually received and the value of the account options). Eli Lilly announced the payment of its CEO John Lechleiter as 15.9 million, an increase of 10% over the previous year. However, independent experts estimate his salary at $20.9 million, a 45% increase over the previous year. The expected payment from Ray Irani CEO of Occidental Petroleum was $58.3 million. His payment was $222.6 million. Says one expert, even if the pay of two CEOs is reported to be the same," you can almost bet they are not the same. " Why is it so difficult to get an accurate reading of CEO pay? A big part of the answer is that, for some time now, a CEO's salary has been tied to the company's financial results and the organization's finances which are quite complex CEO's pay can be based on a number of important financial indicators: valuation, profitability, market share. , earnings per share and equity per share. Many CEOs are awarded shares at a current price, providing an incentive to grow the share price. The chief executive officer at stake here is to align the CEO's interests with the company's interests, so the CEO's motivation is in line with the company's interests. Another complicating factor is time: The value of CEO incentives often depends on metrics, such as stock prices, that are time sensitive. The value of a stock option therefore depends on when the option is exercised. Time is everything. When Apple CEO Steve Jobs granted 7.5 million stock options, someone falsified records that the stock was at a low price, as if at a time before the options were actually granted. This " retroactivity " allowed Jobs to sell his shares at a greater profit than they were charged. Because this type of compensation is complicated, so are the motivational dynamics involved. CEOs have an incentive to "manage the metric," such as to make decisions that maximize the short-term share price (and thus increase the value of stock options), at the expense of the company's long-term interests. Not all directors do, of course, but the incentive is often there. As one expert's conclusion, "Evaluating executive compensation is a bit of black art" (witchcraft).

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